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Silicon Motion: Buy This Dip

Kumquat Research profile picture
Kumquat Research


  • Silicon Motion reported preliminary Q2 results below expectations.
  • Shares are down 16% over the past three months, presenting a buying opportunity.
  • With a NAND production recovery expected in 2H 2017, SIMO looks to be attractive at current price levels.

Silicon Motion (NASDAQ:SIMO) reported preliminary second quarter 2017 results Friday that were below expectations, opening up what I believe to be a buying opportunity. Revenue came in below the low end of management's guidance range and below the consensus analyst estimate, gross margin came in at the low-end of guidance, as shares fell more than 6% in response. This brings SIMO's total decline to 16% over the past three months, which I think has brought the stock to an attractive price level.

ChartSIMO data by YCharts

Revenue for Q2 will come in slightly below the guidance range of between $134 million and $140 million and below the consensus analyst revenue estimate of $136 million, indicating that the tight NAND supply environment hurt Silicon Motion again in the quarter. Gross margin took a hit as well, coming in at the low end of 48.5%-50.5% guidance.

Again, the reason for the weakness is likely the tight supply of NAND chips, which is helping average selling prices but hurting volume sales of Silicon Motion's controllers. This environment has led to a general sentiment of malaise surrounding SIMO shares, which are currently valued at a forward P/E a tad over 10 despite the company expecting a strong 2H 2017. While this seems cheap, whether shares are undervalued really depends on how the NAND market will turn out over the next few months.

While Q2 was not encouraging, Silicon Motion is poised to turn in a much stronger performance in the second half of 2017. Micron Technology (MU), a leading producer of DRAM and NAND, said on its latest conference call that it expects NAND supply to expand and to outstrip demand over the next few months. This supports statements made by Silicon Motion's management as well who stated on the last

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Kumquat Research profile picture
To follow me click the "Follow" button! (Easy right?) Articles written and comments posted by Kumquat Research are NOT financial or investment advice, and only express his opinion. Do your own due diligence!

Analyst’s Disclosure: I am/we are long MU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Will initiate SIMO calls.

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Comments (11)

So in your model , is it a buy , strong buy or speculative buy ?
Kumquat Research profile picture

I'd say SIMO is a Strong Buy for short-term and a Buy for long-term.

David_LI profile picture
Silicon motion's competitor Phison electronics stock price has gain 40% over the past 3 months while SIMO has dropped about 10%, is it because of significant market share loss to the competitor ?
Just Myself profile picture
I have also been watching this......and agree on using options to play SIMO. I am pricing selling Puts and comparing that to buying Calls.

As for timing, it might be wise to wait for the conference call and get an update on 2H 2017.
Kumquat Research profile picture

Perhaps, but by then it may be too late to capitalize. To each his own!

Just Myself profile picture
Prices might be a bit higher but risk will be reduced with guidance at 7/31/2017 CC allowing a better valuation.

Doesn't SIMO also pay their annual dividend in August? I see a 8/3/2017 ex-dividend date but see no PR on this. Perhaps this will also be announced at 7/31 CC????
Thx Jeremy !!!
Kumquat Research profile picture

My pleasure, thanks for reading.

what dip ? and by the way this is a sell the news to low $30s then buy the dip
Kumquat Research profile picture

As I stated in the article, 16% (now 19%) over the past 3 months and 7% (now 10%) since Friday. That's a dip my friend. But why will it dip to the $30s? I think people would be more inclined to believe you if you provided some reasoning, no?

Low 30's? I don't think thats gonna happen!!!
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